A common journalistic ruse is to quote "sources close to the government" about some controversial matter. This way you get the quote, you get the story and you get it sounding high level without having to name names. For example in today's Standard Carrie Chan parrots such a source on the topic of mainland women giving birth in the Big Lychee:

Taxpayers would have to fork out a hefty HK$5 million for each child born in Hong Kong to mainland women, according to a source close to the government.

The price tag would cover the child's education and medical and social expenses as well as the costs of the parents migrating to the territory.

The government is in quite a muddle about these pregnant mainlanders. Funnily enough, there are a lot of them desperate to give birth here even though they largely can't afford it. There are a couple of reasons why: firstly even if they can't pay the hospital bills they know they'll get high quality medical care, and secondly under Hong Kong's Basic Law, Article 24 says the permanent residents of the Hong Kong Special Administrative Region shall be Chinese citizens born in Hong Kong before or after the establishment of the Hong Kong Special Administrative Region. Already there's mutterings of "re-interpretation" of the Basic Law to deal with this issue...although in this case it's so black-and-white that it is hard to see how anyone could squirm out of it. Indeed Article 22 of the Basic Law clearly puts the onus on Beijing to sort out this problem: For entry into the Hong Kong Special Administrative Region, people from other parts of China must apply for approval. Among them, the number of persons who enter the Region for the purpose of settlement shall be determined by the competent authorities of the Central People's Government after consulting the government of the Region. However it doesn't seem as if Beijing is too interested.

Instead the latest solution is more pragmatic, if not draconian:

Executive Council member Jasper Tsang Yok-sing proposed Monday that incentives for pregnant mainlanders to deliver babies in Hong Kong should be thwarted by both immigration and administrative measures.

"This is not an incurable epidemic, but it can be curbed by economic and administrative measures," Tsang said.

Denying entry at the border to non-resident pregnant women is a "universal and equal" immigration policy that is applicable to all, he said...Mainland mothers who fail to settle their medical bills after giving birth in local hospitals should also have applications for their children's birth certificates deferred.

I will be out of blog range for the next few weeks, so hopefully some of my fellow contributors can take up the slack. Hope you have a Merry Christmas and a happy 2007.

Why is it that Hong Kong's police were able to keep hundreds of rabble several hundred metres away from the WTO meeting last December without much fuss, but half a dozen people are able to scramble through police lines each day to protect the old Star Ferry terminal from being demolished? And what are these people trying to protect? Did any of them ever go to the old Star Ferry terminal - a dank, dark, dingy building with no architectural or heritage merit other than being built 50 years ago and having a not particularly note-worthy clock tower? Or is having a clock tower the key to protecting things in this town?

The solution is obvious: just like Murray House, the Government could move the old ferry terminal, concrete slab by concrete slab, en masse to a new venue. In fact, I have the perfect venue: the West Kowloon Cultural District. Alternatively, the Government could plonk it at Lowu and use it as a barrier to the hordes of pregant "non-tourist" mainland women giving birth here. It will be more effective than asking these women if they are really really really really tourists just coming for a visit.

Idiotic headline of the year entrant number 214 from the front page of today's Standard: Latest Fed decision backs Yam theory.

While I'm sure Joseph Yam is a smart (and well compensated) man, I don't think the Fed governors spend a lot of time worrying whether their decisions chime with Yam's views. Given yesterday was one of those rare days where something happened in this town, the SCMP managed to splash a dramatic photo of the Star Ferry fracas over the front page while The Standard manages two 1/4 page columns of nothing on its messy front page. In the race to the bottom in Hong Kong's paper wars, The Standard has managed to slide way past the SCMP at a rapid rate.

Donald Asprey in today's Standard Metro section tells the story of a Hong Kong couple who kept a blog recounting the tragic 9 day life of their baby. Indeed it's such a good story that it was also reported by Tonny Chan, in the Standard's Metro section yesterday. All of which begs a couple of questions. Firstly, do the reporters at The Standard read their own paper? Secondly, does the Metro editor at The Standard read their own paper? Thirdly, are they that short of story ideas?

Meanwhile, Mark Clifford's musical chairs continues at the SCMP. What is it with the English language papers in this town?

Hong Kong had an earthquake, albeit a minor one, on the weekend. The mini-election to elect a small group to elect a Chief Executive produced something of a shock, which is quite shocking as the system is designed to avoid such things. In Hong Kong's extremely unique democracy, various interest groups get to elect members of an 800 person election committee who then decide on who will be CE. To make it appear like it's a geniune race, a candidate needs 100 nominations from that 800 to run. Remarkably the pro-democrat camp realised they needed to rally around a single candidate to have a chance, which they did. More remarkably the pro-democrats then managed to get around 130 of themselves onto the election committee.

The result is not in doubt - The Don will win. But the system is showing that even supposedly "loyal" sectors are starting to get fed up. The accountants and academics largely voted for pro-democrats, at the same time delivering a substantial kick in the pants to their "establishments". Some grandees in the legal sector also discovered that being the right person doesn't entitle you to automatic election victory. It's not quite a grass-roots victory, but clearly even the professional classes are starting to assert their desire for pro-democrats, which is kind of amazing.

Perhaps not co-incidentally, one-time Chief Executive aspirant Lo Tak-shing passed away. One of his lasting contributions to HK was coming up with the incredible dual-voting structure in Legco, so that even if a majority vote a certain way, the institutionalised vested interests that are the "functional constituencies" have a veto over the democratically elected other half of the chamber. Still, it takes a kind of genius to have two voting chambers within one council.

Philip Bowring, I believe, lives in Repulse Bay. He looks into the sordid story of the still empty 129 Repulse Bay Rd. It's a very Hong Kong story.

The Jamestown Foundation's China Brief this time dedicates itself to China's modernisation and reforms and has some great reading from experts rather than pundits:

1. Bejing's grand new strategy: an offensive with extra-military instruments.
2. Perpertual challenges to China's education reform.
3. China's inner-party democracy: toward a system of "one party, two factions?"
4. Accelerating reforms in China's financial system.
5. Reforming China's healthcare system: Beijing's strategy for establish universal coverage.

They're all interesting reading, just in time for the weekend.

It's all tourism in today's papers. Firstly we get the devastating news that Hong Kongers now require visas to visit Bangladesh. Secondly, now the GST is off the table it's time to talk about a depature tax to "widen the tax base", even though the government's accounts are in rude health. And finally pregnant mainlanders are causing all sorts of bother in the city's hospitals because they keep having babies here.

Meanwhile it apparently takes a month for a US dollar cheque to be cleared here in Hong Kong, even though it's drawn on the same bank as I'm depositing it with and even though Hong Kong's currency is, last time I looked, convertible to US dollars at a set rate.

Far be it for oen to question the integrity of Hong Kong's newspapers, but ESWN asks a great question: what are the "promotion" fees being paid by Alan Leong? Will Mark Clifford's high standards again be tested?

While tragic for his family, the death of Russian spy Alexander Litvinenko has a few silver linings. Firstly it's nice to see good old fashioned spycraft making a comeback. Is it a co-incidence this happened just as the "new" James Bond movie came out, taking 007 back to his first mission? In an age when it's all about the gadgets and satellites, it's good to see the cloak and dagger age hasn't been completely eclipsed. Secondly, Mr Litvinenko's death has finally proved that Peter Parker could not possibly be Spider Man, because radioactive spiders kill just the same as polonium. This confirms earlier research on radioactive spiders. Unless, of course, it was actually kryptonite, not polonium, the Russians sprinkled on his sushi...

The secrets to being a successful Hong Kong investor:

1. Find a small, obscure stock.
2. Slowly accumulate a position in the stock.
3. Compile a thoroughly researched opinion piece on the stock's cheapness.
4. Using your reputation as a stock picker in a gambling mad city, watch said stock appreciate 35% the day after you release the report.
5. Repeat once a year.

In fact David Webb concisely summarises the mania and opportunities in the current market, including an astute observation of the level of the yuan:

In the last year, and particularly in the last few months, investors have, in our view, been indiscriminately exuberant over IPOs, commodities, energy and mainland consumer plays, and have lost sight of governance risk and fundamental valuation. A lot of hot money has also been chasing a narrow selection of large-caps, resulting in over-stretched valuations. Funds have been awash with cash and forced to invest it, and the retail public has begun to believe that all IPOs are guaranteed to make money just because some tycoon is buying it.

In Hong Kong, inbound liquidity to the mainland has kept mortgage rates artificially low and fuelled the property bubble. After a change in international accounting standards, companies' reported earnings now include property revaluation gains, but these represent the increase in the net present value of all the future years of income attributable to such assets, so they should be excluded when calculating the core P/E of the market, otherwise you are looking at a multiple on a multiple. Complacent analysts have been quoted as saying that the market's P/E is still "reasonable" or "attractive" at 14 or 15 despite recent record high prices. However, if you strip out property revaluations and other non-recurring items such as profits from sales of businesses, then the core P/E is now about 20, and it has spent very little time up there in the last 30 years. We haven't seen this much irrationality since the 1999-00 tech bubble, and you know what happened next. So look for a big sell-off of blue chips in the coming 12 months.

Meanwhile, if you do your homework, there are lot of cheap value stocks to choose from, particularly in the manufacturing sector, which is emerging from a difficult 2 years in which margins were squeezed by rising raw material prices. These have now stabilised or in some cases have begun to fall, allowing recovery of margins as the higher costs are passed down the supply chain. Meanwhile, the electricity shortages you read so much about in 2004-5 have been much reduced this year, as China brings new capacity on stream. You will also have read about the 3% appreciation in the RMB - but that is partly because the standard quotation of the currency is against the US dollar. In fact, the RMB has actually depreciated around 8% against the Euro in the last year, making exports to Europe more attractive and accelerating the outsourcing of manufacturing to China. This has gone some way to mitigating the rising cost of labour in China, and factories are also meeting the challenge by moving inland as the transport infrastructure improves, and by increasing automation where possible.